through capital gains, while in the $500,000 class one-third of income is derived from capital gains.

On the other hand, you say that the laborers themselves were the largest of the investors.

Mr. JAVITS. That is true.

Mr. MILLS. If the amount invested is small, the two statements could be correct then; is that right?

Mr. JAVITS. Well, they are reconcilable. Confining it to the question of the number of investors, they are reconcilable.

Mr. MILLS. You referred to a number of investors with small amounts invested?

Mr. JAVITS. That is right. You take any of the first 10 large publicly-owned corporations. Of course the largest is the American Telephone & Telegraph; it has almost a million stockholders. I think General Motors is the second largest. It is quite inconceivable that there are 400,000 to 450,000 stockholders in General Motors who have income of over $5,000 or $6,000 a year. There are hundreds of thousands of stockholders in A. T. & T. and in General Motors who own from 1 to 20 shares of stock. A good many buy them on the installment plan, especially with this mutual fund development of recent years.

Mr. MILLS. Tell me a little bit about the organization you represent, Independent Investors, Inc.

Mr. JAVITS. It is an outgrowth of another organization which I organized about 9 years ago with Mr. Forbes called the Independent League. About 2 years ago Mr. Forbes apparently made up his mind to permit management to get into the operation and control of the organization, and I felt that at some future time that would be very unfortunate because any investor group that could be effective down here particularly would have to keep an integrity of its own and not be subject to some Congressman or Senator making it appear or show that it was a cat's paw for either management or the National Association of Manufacturers or the United States Chamber of Commerce or somebody else. I do not say that invidiously at all. Therefore I developed this new organization.

Mr. MILLS. Is this present organization one that deals directly with investors?

Mr. JAVITS. That is all, it deals only with the investors. Of course there are people who are members of it, like vice president and president of corporations, large owners of securities, too, but they have no participation as management in any way, shape, or form.

Mr. MILLS. I notice you mentioned that the organization is in no way tied up with management or banking groups, and that the investments are largely in stocks and bonds.

Mr. JAVITS. Policyholders. Of course there are many duplications but statistically there are 70,000,000 policyholders in the United States. Statistically there are 46,000,000 savings bank depositors. There is an enormous amount of duplication. They come under the

head of investors and have never been mobilized.

That is another reason for the organization, because we believe that you people are subjected to unfair pressures. Not that you respond to them but you have the pressure of management, the National Association of Manufacturers, the United States Chamber of Commerce particularly, and others, and you have the pressure of the

labor people and farm people; but the little independent investor is not really represented around these parts. It is that stake that I think should be called to your attention and that group represented so there will be an even set of pressures at least. I think your conclusions as a result would be probably a little better. It is not because of your fault but because that point of view has not been presented. May I add this in connection with your calling my attention to Mr. Ruttenberg's statement regarding capital gains? The only difference between Mr. Ruttenberg and me is the difference in that old saying, "You can take a horse to water but you cannot make him drink." It is perfectly true if people would sell their securities and a larger rate was imposed, sure, you would get more revenue, but the fact is they do not sell their securities because you have this rate. They will be less inclined to sell their securities if you increase

the rate.

Mr. MILLS. I was coming to that point. Now the capital-gains tax of course applies to the sale of capital assets other than stocks and bonds. Have you studied the possible effect at the present time of a reduction in the rate of the capital gains tax on inflation, on prices of property?

Mr. JAVITS. Yes. I do not think that has any great direct contribution to inflation. I will explain why later if you wish me to. From that standpoint I think it would reduce the price of property because people would be more willing to sell and dispose of their holdings.

For instance, take my own case.

I own certain securities which I have had for maybe 15 to 20 or 25 years. When I figure out the return after paying the capital-gains tax, it does not pay me to sell the stuff for another security. If the tax were less, I would be very much inclined to sell and look for a bargain somewhere else.

After all, you must remember this, that the capital-gains taxpayer is a hunter for bargains. He is using his own enterprise in that area and he is trying to find hidden values. That is how the Government can benefit by giving him a greater incentive to find out where the hidden values are and pay the Government its share of his acumen or his ability, which you are not getting today.

Mr. MILLS. I have been concerned about the possible effect on prices of property, farm properties, for example, of a reduction in the capital-gains tax. We have gone through periods where farm prices have been highly inflated, as you perhaps know. Would there be likely to be any great inflation in farm prices, for example, if we reduced this capital-gains tax, and made it easier to sell, and less tax to be paid if the sale occurred?

Mr. JAVITS. You have got another problem there with which I am not very familiar, although I am just becoming a farmer myself in a small way, and that is this: You see, you have with the farmer, as I see it in my own way, he is a special ward of the Government. He is getting an awful lot of aid and assistance and cash.

Mr. MILLS. Let me interrupt you right there. Your fellow farmers will not welcome you into the circle if you let that statement stand. Mr. JAVITS. No, I am telling you how a layman looks at it. This may all be for the benefit of the economy, and I do not say it is not, ultimately probably it is, but I am trying to answer your question. But I think a lot of that inflation that may be present in farm prices

is as a result of that, rather than some other things, or rather than this particular capital gain problem.

I do not know what the market is in farm properties, and how much the farmer is loath to sell because he has to pay a 25 percent tax. I do not know that.

Mr. MILLS. Let me ask you about the effect of the holding period upon these people who buy the securities from the members of your organization, the people to whom you refer. What is the effect of the holding period upon them, whether it is 6 months or a year? My point is this: These people to whom you allude, do not they buy stocks largely for investment purposes, rather than for purposes of speculation?

Mr. JAVITS. I think it is a very excellent point. It is a very, very pertinent question. Let me give you the answer. I do not want to wave the flag giving you the answer, and I do not want you to misunderstand me. I think what you say is perfectly true as far as the average man and woman is concerned, but I am also thinking of this upper bracket group, of the larger group, or the group that, say, has 10 or 15 thousand or more a year income, that is very educated on this sort of thing. I am thinking of getting more revenue out of that group for the Government than out of the average small investor who rarely switches.

Now, there are a large number, and what the percentage is I cannot tell, of course, of the so-called membership or the type of membership that we have, who will make switches from time to time and may be restrained from doing it because of the 25 percent capital-gains tax, but the real benefit to the Government here, and the immense revenue, and this is what I am here on, to urge upon you the fact that you are overlooking a terrific bet, to get the revenue from those sources which are now escaping you.

Mr. MILLS. Well, I think you are right, if you will pardon me for interposing. If you make the rate 15 percent, and retain the 6 months holding period provision, if there is any possibility at all of making any money out of trading in bonds and stocks, more money would go into that field because of the fact that the rate of tax would be less than perhaps on income made from any other activity. If a person could hold his stock for 6 months and sell and make a profit, and only pay 15 percent on the gain, and then reinvest, and do the same thing in another 6 months, I should think more people would become speculators in stocks and bonds.

Now, would it be fair to create tax-wise a situation that would inure to the benefit of one segment of our economy and to the detriment of perhaps other segments that may need some additional financing?

Mr. JAVITS. If I may respectfully take exception to your designation of these people as speculators.

Mr. MILLS. Not the ones that you are talking about in your pamphlet, but there are people, I should think, that would become speculators if they could make a profit and pay 15 percent on their income.

Mr. JAVITS. I do not think so, and let me tell you why. What I am talking about is a greater freedom of the process of exchange.

Now, of course, as you know, the economy is made up of three processes, production, distribution, and exchange, or four processes, and consumption. Now, it is the process of exchange that I am inter

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ested in keeping free because I think that that is fundamental to our way of life, as I pointed out before. Now, I do not believe that if you have 15 percent tax or a 3 months' holding period that is going to make any difference insofar as the character of the person operating is concerned. What it is going to do is this: If, for instance, now, I own Cities Service stock which I have had, say, for 20 years, and some of it I paid a lot of money for, and some of it I bought rather cheap; we will say that Calgary-Edmonton, which is a Canadian company that has 1,000,000 or 2,000,000 acres of land under lease in Canada, and is a comparatively new field, and it comes to the fore, and I say to myself, "Now, I think I am better off if I would sell this Cities Service in which I have, I will say, a 20-point profit, and go into Calgary-Edmonton, and hold that for 20 years." Of course, you have the privilege of calling me a speculator, and say that I am speculating, but I take exception to that because I do not think that that is by and large the character or the intent of what I am doing. And I think the average person of the United States is not going to do it, and he is not going to do it for that particular reason.

Yes, if you have a 1929 temper, in the security markets, and if you have these fellows who have these syndicates, all these phoney operations of buying and selling, and all of the other things which go to make the public a sucker, and which the SEC was designed to prevent, that is a little bit different. But I do not think that you are going to promote speculation, or make speculators out of the American people by doing this.

Mr. MILLS. Let me put it another way, then. Taking your division of our economy, production, distribution, and exchange, if we accord the treatment to the exchange segment of the economy which you are recommending, do we place the production and distribution segments of our economy in any disadvantage?

Mr. JAVITS. No, you do not. I will tell you why. In the first place, we are talking about a war period. If it was not a war period, then I would very much agree with those people who hold to the view that taxes should be reduced, because then you give incentive to production. But talking from the war-period point of view, and in the war period itself, I am talking from the standpoint of creating first more revenue. This is more revenue. I am insuring it for you, if you will follow the suggestions, and if it is a practical one, if you pass this law or if you change this law, if it works, say, in the years prior period, and you get more revenue, then it stands, and if it does not, the man who sells his stock and pays 15 percent is subject to having an increase of 25 back or 30 percent, or whatever you may increase it to, if the Government does not get more revenue. So that you insure it.

The second point that I am trying to impress in making this statement in connection with the capital gains tax is that we must preserve the freedom to exchange and the freedom to own, because the more you tax that, the more you place a burden on the freedom to own and the freedom to exchange, the more you endanger the very system for which we are fighting.

Mr. MILLS. But if we reduce the tax here on the freedom of exchange of capital assets, we will, in all probability, if we follow your suggestion, increase the tax on productive facilities in the United States, and the distributive facilities.

Mr. JAVITS. No; you do not do that.

Mr. MILLS. Well, the recommendations of the Treasury will certainly place a greater rate of tax upon productive facilities.

Mr. JAVITS. Well, Mr. Mills, you must take my thesis and see if what I suggest is consistent. I suggest two things. I do not emphasize particularly the general sales tax, because nobody has pressed me, but I made it in my statement that you should have two essentials, or two essential forms of taxation; One, the general sales tax, which is to me from my point of view, and from the point of view of maintaining and retaining the strength of this democratic form of government, the first essential. The second one is this particular area of capital gains tax. If you take them both together, then I cannot be charged with having neglected the proposition that you have to get revenue from some place. I have already told you that if you are going to need additional revenues, you should get it out of the general sales tax, because that is the honest way to do it, and that is the way the people will see what they have got to pay. If the average man today were earning 10 or 12 dollars a day, and knew that 1 or 2 days a week he is contributing to the Government, he would see it right there, and if his general sales tax were even 30 percent-I do not care what it ishe would know what he was paying. He probably would be a little bit sharper in dealing with the nonessentials which you men have been talking about, that are taking place in the expansions of government or the wastefulness that is taking place in the expenditures of government, than he is right now.

Mr. MILLS. I cannot see, Mr. Javits, that it would be equitable to reduce the tax on one type of income and to increase the tax on all other income.

Mr. JAVITS. But you are not laying the emphasis on the right side. It is not a reduction of income. It is increase of revenue. I do not care what you do to get the increase of revenue, if you had to reduce it to 1 percent, and if I could underwrite it to you, or if you do underwrite it. In other words, if you say to yourself, if you reduce it to 1 percent, you would get twice the revenue, you would do it, and would you worry about the decrease if you were getting more revenue?

Mr. MILLS. It might be suggested by those who come in in opposition to an increase of corporate tax that we should reduce the tax on corporations, and we might stimulate greater production through that vehicle, and thus get more revenue by reducing the tax. To me it is a business of weighing the proposition on the scales of equity.

Now, I am thinking in terms of the application of a tax to different types of income. Income to a corporation will be treated in a certain manner and income to indivduals from work and from the operation of a business will be treated iin a certain manner. Now, income from investments should be treated in a certain manner, but in applying those various treatments it occurs to me that you must retain some degree of equity, regardless of what the consequences revenuewise might be.

Now, I can agree with you that there may be a possibility that if we reduce the capital gains to 10 percent we might get in more money, but still to me you have to weigh the thing on the basis of equity.

Mr. JAVITS. If the equities are out of balance, you should, but I do not see where the equities are out of balance here; if you get more revenue by mathematically proving it in the reduction of the tax, I do not see where you violate any principle of equity there by keeping